Business Services Business Services Finance and Accounting 1 — Questions and Answers
Question 1: What does 'accounts payable' refer to in a business context?
- Money owed by the company to suppliers (Correct answer)
- Money owed to the company by customers
- The company's total revenue
- The company's net profit
Correct answer: Money owed by the company to suppliers
Accounts payable represents short-term liabilities a company owes to its vendors or suppliers for goods and services received.
Question 2: Which financial statement shows a company's revenues and expenses over a period?
- Balance sheet
- Income statement (Correct answer)
- Cash flow statement
- Statement of equity
Correct answer: Income statement
The income statement (also called profit and loss statement) summarizes revenues, costs, and expenses during a specific period.
Question 3: What is 'depreciation' in accounting?
- An increase in asset value over time
- The allocation of an asset's cost over its useful life (Correct answer)
- A type of tax deduction only
- The total debt of a company
Correct answer: The allocation of an asset's cost over its useful life
Depreciation systematically reduces the recorded cost of a fixed asset over its estimated useful life to match expense with revenue.
Question 4: Which ratio measures a company's ability to pay short-term obligations?
- Debt-to-equity ratio
- Price-to-earnings ratio
- Current ratio (Correct answer)
- Return on equity
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) measures how well a company can cover its short-term obligations with its short-term assets.
Question 5: What is 'working capital' in business finance?
- Total long-term investments
- Current assets minus current liabilities (Correct answer)
- Annual revenue minus annual expenses
- Total equity of the business
Correct answer: Current assets minus current liabilities
Working capital is the difference between a company's current assets and current liabilities, representing the funds available for day-to-day operations.
Question 6: What does 'EBITDA' stand for?
- Earnings Before Interest, Taxes, Depreciation, and Amortization (Correct answer)
- Estimated Business Income Tax and Deduction Amount
- Equity Backed Investment Total Dividend Allocation
- Earnings Before Internal Tax and Depreciation Adjustment
Correct answer: Earnings Before Interest, Taxes, Depreciation, and Amortization
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization, commonly used to evaluate a company's operating performance.
Business Services Business Services Finance and Accounting 1
What does 'accounts payable' refer to in a business context?